Alfred\'s requires an average accounting return (AAR) of at least 19 percent on
ID: 2636739 • Letter: A
Question
Alfred's requires an average accounting return (AAR) of at least 19 percent on all fixed asset purchases. Currently, it is considering some new equipment costing $141,000. This equipment will have a four-year life over which time it will be depreciated on a straight line basis to a zero book value. The annual net income from this equipment is estimated at $6,700, $9,500, $21,900, and $13,400 for the four years. Should this purchase occur based on the accounting rate of return? Why or why not?
yes; because the AAR is equal to 19 percent
yes; because the AAR is less than 19 percent
no; because the AAR is equal to 19 percent
no; because the AAR is less than 19 percent
yes; because the AAR is greater than 19 percent
yes; because the AAR is equal to 19 percent
yes; because the AAR is less than 19 percent
no; because the AAR is equal to 19 percent
no; because the AAR is less than 19 percent
yes; because the AAR is greater than 19 percent
Explanation / Answer
yes; because the AAR is less than 19 percent
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